Contributions to a jointly controlled entity or an associate

ProjectsWork plan for IFRSConsolidated and Separate Financial Statements: Contributions to a jointly controlled entity or an associate

Consolidated and Separate Financial Statements: Contributions to a jointly controlled entity or an associate

Issues considered but not included in the Annual Improvements to IFRS project

IAS 27 Consolidated and Separate Financial Statements:
Contributions to a jointly controlled entity or an associate

The Interpretations Committee received three requests asking for clarification of the accounting when a parent loses control over a subsidiary and that subsidiary is contributed so as to become (part of) a jointly controlled entity (JCE) or an associate.

In particular, does the parent recognise the full gain or loss resulting from the transaction or only to the extent of the interest of the other equity holders in the JCE or the associate?

The Interpretations Committee noted that there is an inconsistency between the guidance in IAS 27 Consolidated and Separate Financial Statements and IAS 31 Interests in Joint Ventures together with SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers for transactions where a parent contributes interests in a subsidiary to a JCE and this contribution results in a loss of control in the subsidiary by the parent. Paragraph 5 of SIC-13 restricts gains and losses arising from contributions of non-monetary assets to a JCE to the extent of the interest attributable to the other equity holders in the JCE, whereas paragraph 34 of IAS 27 requires full profit or loss recognition on the loss of control.

The Interpretations Committee noted that the IASB had previously in December 2009 decided not to deal with the inconsistency within the joint venture project but to deal with it separately. The Interpretations Committee also noted that there are broader issues in relation to contributions to a JCE or associate in general, particularly involving the loss of control when a subsidiary becomes a JCE or an associate. The Interpretations Committee therefore concluded that this issue would be best resolved by referring it to the IASB as part of a broader project on equity accounting. Consequently, the Interpretations Committee decided to recommend that the IASB should not add the issue to Annual Improvements.